China’s Economic Activity Slowed in November on Property Slump, Weak Consumption

China’s economic activity decelerated in November amid a prolonged property slump and sluggish consumption recovery, adding urgency for Beijing to step up efforts to support the world’s second-largest economy.

Leading indicators of consumption and investment activity weakened further from October, while factory production rose at a faster pace in November as a power crunch eased, according to China’s National Bureau of Statistics on Wednesday.

Industrial production expanded by 3.8% in November from a year ago, accelerating from 3.5% growth in October, a rare bright spot in China’s economy as efforts to alleviate electricity shortages led to increased coal output in recent weeks.

Still, a persistent property downturn continued to drag on overall investments. Consumer spending, a laggard in China’s recovery from the pandemic, also showed new signs of weakening.
Fixed-asset investment increased 5.2% in the January-to-November period, down from the 6.1% pace recorded in the first 10 months, official data showed. The reading was in line with the expectations of economists polled.

Prices of new apartments, which began falling in September, continued to decline through last month as homebuyers grew increasingly concerned about developers’ financial health.

New-home prices dropped 0.33% in November from October across 70 cities, the biggest month-over-month decline in about six years, according to calculations by The Wall Street Journal based on official data released Wednesday.

New-construction starts by property developers, which provide jobs for migrant workers and boost China’s demand for commodities, dropped 9.1% in the January-to-November period from a year earlier, widening from a 7.7% on-year decline in the first 10 months of the year.

Retail sales, a proxy for China’s consumption, rose just 3.9% last month from a year ago, down from October’s 4.9% year-over-year growth and lower than the 4.5% expected increase among economists polled by the Journal. China’s strict Covid-19 restrictions affected sectors including catering, where sales fell 2.7% in November, a larger decrease from a fall of 2% in October.

The latest economic data point to a further slowdown in China’s economy that began to sputter in the third quarter on the back of a power crunch that curbed factory output, and sporadic Covid-19 outbreaks that hit consumption. The continuing downturn in the sprawling property market triggered by the liquidity crisis of highly indebted developers such as China Evergrande Group Co. has also weighed on the economy.

China’s policy makers have signaled in recent weeks that they will pivot toward shoring up the economy and take further measures to cushion the blow from a rapidly cooling property market.

At the Central Economic Work Conference concluded last Friday, China’s top leadership emphasized stability as the top priority for the economy next year, signaling a shift in policy focus after a string of regulatory crackdowns across technology, education and real-estate industries this year left the economy on wobbly ground.

“China is likely to adopt a more proactive fiscal policy next year,” said Shuang Ding, an economist with Standard Chartered Bank, adding that rising inflation pressure next year is likely to constrain the central bank’s scope in monetary easing.

Beijing is likely to set a growth target of 5% or higher for 2022, which could motivate local governments to ramp up fiscal spending to hit targets, said Mr. Ding. Relatively sluggish local government spending has dragged on economic growth this year, he added.

Last week China moved to unleash more liquidity in the financial system by cutting the reserve requirement ratio, or the amount of cash that banks must hold in reserve. Some economists expect China could further reduce the reserve-requirement ratio and even lower key benchmark interest rates in coming months. Authorities have eased restrictions over mortgage lending and are expected to loosen policies related to the housing market further.

However, economists widely expect that a trio of headwinds highlighted by authorities at last week’s meeting—contracting demand, supply-side shocks, and weakening expectations—could be exacerbated in the coming months by uncertainty surrounding the Omicron Covid-19 variant.

The detection of more than 200 Covid-19 cases in China’s eastern Zhejiang province over the past 10 days prompted officials to shut down some factories temporarily, threatening to disrupt output at one of the world’s largest production bases.

At least 20 manufacturers based in Zhejiang, a large manufacturing region producing a range of products including textiles and LED lights, halted production over the past week after local officials imposed lockdowns, according to the companies’ filings. Most companies didn’t disclose when the factories will reopen but said they expected the disruptions to be short-lived.

Recent Covid-19 outbreaks suggest that consumer caution will remain, and further supply-chain disruptions are a “significant possibility,” economists from Capital Economics wrote in a note Wednesday.

As China’s economy slows, officials and economists are becoming more concerned about the strength of the labor market, where some signals of stress have begun to emerge.

The surveyed unemployment rate in urban China edged up to 5% last month, from 4.9% in October, while the urban jobless rate for those age 16 to 24 stayed high at 14.3% in November.

“Ongoing pressure in the job market has weighed on income growth and spending,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities, “More measures are needed to buffer the deteriorating employment conditions.”

Author: Stella Yifan Xie, The Wall Street Journal

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